Opinion Pieces

European tax on American travel

While Republicans have been fighting new taxes in Washington, Americans may face a new tax from an unlikely source - the European Union (EU). Beginning Jan. 1, 2012, the EU will extend its cap-and-trade system (aka cap-and-tax) to all airlines entering or leaving its airports. Americans flying to and from Europe will begin paying higher fares to cover the EU’s new tax.

The EU’s emissions tax will cover the entire flight. For example, if a U.S. carrier is flying from San Francisco to London, the tax will take effect when the aircraft begins to taxi on the runway in California. The bill will continue to accrue throughout the entire flight, even though only a small portion actually occurs in the EU’s airspace. The airlines estimate that the EU’s new tax will cost them $3.1 billion by 2020 and they project a potential fare increase of more than $50 on a trans-Atlantic flight.

The environmental benefits of these actions will be, at best, negligible. The entire U.S. aviation industry is responsible for just 2 percent of our total emissions. In 2012, the EU will require a 3 percent reduction from the average emissions from 2004-06 on all flights into, out of or within the EU. Carriers that fail to meet this standard will have to buy emissions credits from and pay fines to the EU.

European countries have no obligation to use collected funds for climate-related programs. It is simply revenue straight from U.S. pockets to European coffers.

The EU argues that it is creating incentives for airlines to reduce their fuel consumption and that airlines can avoid fines by simply increasing their efficiency. Airlines, however, already have this incentive. According to the Air Transport Association (ATA), a one-penny-per-gallon increase in the cost of jet fuel results in an additional cost to airlines of $175 million per year.

These cost realities have driven airlines to make great strides in fuel efficiency. The commercial aviation industry has improved fuel efficiency by approximately 110 percent from 1978 to 2008. It continues to improve, but given costs and safety considerations, technological innovations necessarily move at a slow pace. As a result, it is simply impossible for airlines to avoid the EU’s fines.

The EU’s actions are a blatantly illegal affront to U.S. sovereignty. Article 1 of the Convention on International Civil Aviation, known as the Chicago Convention, provides that individual countries may only regulate their own airspace. The ATA has filed suit in EU courts, but legal experts agree that the EU courts are highly unlikely to overturn an EU law.

The EU has offered two preposterous arguments in its defense. First, it has argued that a cap-and-trade system is not a tax because the purpose is emissions reduction, not revenue collection. Proponents of climate legislation in the United States made similar arguments in support of cap-and-tax, but the reality remains that an obligatory financial transfer from a private party to the government is, by definition, a tax, regardless of the government’s purported purpose.

The EU also argues that it is not a signatory to the Chicago Convention. Technically, this is right. Every single country in the EU, however, is a signatory. The implications here are staggering. European countries are asking a European court to sanction their ability to pick and choose their international obligations. Under this logic, individual countries in the EU can sign treaties and benefit from their protections, but can then hide behind the EU to avoid their obligations.

As EU courts are not expected to uphold international law, it will be up to Congress and the administration to protect U.S. carriers and passengers from illegal taxation.

Congress‘ options are frankly limited. Congress has already introduced legislation to bar U.S. carriers from paying the EU’s tax. The legislation is, however, a blunt fix. If passed, airlines would face conflicting legal obligations. EU law would require airlines to pay fees, but U.S. law would bar them from paying them - forcing a standoff. Only the administration has the ability to negotiate a diplomatic solution.

The Obama administration opposes the EU’s new tax, but with the Jan. 1 deadline looming, it must work quickly before the illegal fees take effect.

Rep. F. James Sensenbrenner is a Republican member of the U.S. House of Representatives from Wisconsin.